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2021 (10) TMI 343 - HC - Benami PropertyBenami transaction - provisional attachment orders passed by the Initiating Officer u/s 24(4) of the Prohibition of Benami Property Transactions Act, 1988 - Real owners of property - transaction under the Companies Act of transferring shares of one shareholder to another - commercial complex as been leased out to the company by the JDA - HELD THAT - As in the present case, all the properties in question being in the name of petitioner No.1-company and all applications which have been moved to the JDA authorities for surrendering land under Section 90B of the Rajasthan Land Revenue Act and for setting up a commercial building, have been made in the name of the company. The contention of the respondents with regard to intentions of petitioner Nos.2, 3 and 4 to own the plot of land adjacent to the plot owned by another company called Paradise Complex Ltd. and therefore, the petitioner No.1-company was set up, is clearly a misreading of the provisions of the Companies Act. Merely because the petitioner nos.2, 3 and 4 can be said to be shareholders of the company, the Paradise Complex Ltd. would not make them owners of land of the company. So far as the ownership of land is concerned, each company has right to purchase property. The Benami Act, 1988, in the opinion of this Court, would not extend to properties purchased by the company. The transactions of the company are independent transactions which are only for the purpose of benefit of the company alone. It is a different aspect altogether that on account of benefit accruing to the company, the shareholders would also receive benefit and they may be beneficiaries to a certain extent. This would however not make shareholders as beneficial owners in terms of the definition as provided under Section 2(12) of the Benami Act, 1988. 'Company' as defined under the Companies Act, 1956 and incorporated thereunder, therefore, cannot be treated as benamidar as defined under the Benami Act, 1988. The company cannot be said to be a benamidar and its shareholders cannot be said to be beneficial owners within the meaning of the Benami Act, 1988. The entire fulcrum of this case, therefore, rests on misinterpretation of the provisions of the Benami Act, 1988. All the transactions in the corporate world made by the company would become benami transaction if the interpretation of definition as understood by the respondents is accepted by this Court. The entire proceedings initiated under the Benami Act, 1988 deserve to be quashed and set aside. The proceedings initiated under the Benami Act, 1988 are found to be based on income tax proceedings initiated and the statement recorded of one Madan Mohan Gupta. As per record, it is noticed that statement of Madan Mohan Gupta has not been accepted by the Income Tax Authorities for initiating any proceeding of evasion as against Rajendra Kumar Jain. The affidavits given by Madan Mohan Gupta are also not found to be reliable and he has changed his version from time to time. Transferring of shares by Madan Mohan Gupta to the petitioner nos.2, 3 and 4 could not be a ground to draw inference of benami transaction. It is opinion of the Court, the transactions done legally under the Companies Act of transferring shares of one shareholder to another, the benefit, if any, which may accrue on account of legally allowed transactions cannot be made as a ground to draw presumption of benami transaction under the Benami Act, 1988. The strict proof is required to be produced and there is no room for surmises or conjectures nor presumption can be made as the Benami Act has penal consequence. This Court also finds strength in the arguments made by learned counsel for the petitioners regarding provisions of Section 90B of the Rajasthan Land Revenue Act. Once the land has been surrendered and the order has been passed by the JDA under Section 90B of the Rajasthan Land Revenue Act, 1956 and the land has been converted from agriculture to commercial and registered lease deed has been executed by the JDA in favour of the company, the transaction is not a benami transaction. This Court concludes that action of the respondents in attaching commercial complex which has been leased out to the company by the JDA is illegal and unjustified and without jurisdiction. The provisional attachment orders dated 12.01.2018 passed by the Initiating Officer under Section 24(4) of the Benami Act, 1988 and the orders passed by the Adjudicating Authority dated 30.01.2019 confirming the orders under Section 26(3) of the Benami Act, 1988 are set aside with all consequential benefits. The property shall be handed over to the company.
Issues Involved:
1. Provisional attachment orders under the Prohibition of Benami Property Transactions Act, 1988. 2. Confirmation orders by the Adjudicating Authority. 3. Legality of proceedings under the Benami Act, 1988. 4. Retrospective applicability of the Benami Act, 1988. 5. Ownership and benami status of property held by a company. 6. Procedural fairness and opportunity of hearing. 7. Delay in initiating proceedings. 8. Jurisdiction and validity of the attachment of commercial property. Issue-wise Detailed Analysis: 1. Provisional Attachment Orders under the Prohibition of Benami Property Transactions Act, 1988: The petitioners challenged the provisional attachment orders dated 12.01.2018 issued by the Initiating Officer under Section 24(4) of the Benami Act, 1988. The orders were based on the assertion that the property was purchased in the name of M/s. Shri Kalyan Buildmart Pvt. Ltd. (the petitioner No.1-company) by dummy Directors Madan Mohan Gupta and Shashikala Gupta, acting as benamidars for Rajendra Kumar Jain, Navrattan Kothari, and Vimal Chand Surana. 2. Confirmation Orders by the Adjudicating Authority: The Adjudicating Authority confirmed the provisional attachment on 30.01.2019 under Section 26(3) of the Benami Act, 1988. The petitioners argued that the confirmation was erroneous and based on incorrect interpretations of the law, as the company, being a juristic person, cannot be a benamidar. 3. Legality of Proceedings under the Benami Act, 1988: The petitioners contended that the proceedings were illegal and unjustified, asserting that the company legally purchased the land and the subsequent transfer of shares did not make the property benami. They emphasized that the company has its own separate legal identity and the relationship between shareholders and the company cannot be construed as benamidar and beneficial owner. 4. Retrospective Applicability of the Benami Act, 1988: The court refrained from adjudicating on the retrospective applicability of the Benami Act, 1988, noting that the Supreme Court is yet to decide this issue definitively. However, it acknowledged that previous judgments, such as Mangathai Ammal and Joseph Isharat, observed that the amended provisions should not apply retrospectively. 5. Ownership and Benami Status of Property Held by a Company: The court held that a company incorporated under the Companies Act, holding property in its name, cannot be considered a benamidar. It emphasized that the funds of the company are its own assets, and shareholders do not own the company's property. The court found that the transactions were legal and the company, not the shareholders, was the beneficial owner of the property. 6. Procedural Fairness and Opportunity of Hearing: The petitioners argued that they were not given a fair opportunity of hearing, as the provisional attachment orders were passed without allowing them to present oral arguments. The court noted that the reliance on the statement of Madan Mohan Gupta, which was inconsistent and unreliable, further undermined the fairness of the proceedings. 7. Delay in Initiating Proceedings: The court found that the proceedings initiated after a delay of 10 years were highly belated and outside the reasonable period of limitation. It emphasized that such proceedings should be taken up immediately or within a reasonable period, generally three years as provided under the Limitation Act, 1963. 8. Jurisdiction and Validity of the Attachment of Commercial Property: The court concluded that the attachment of the commercial complex, which had been leased out to the company by the JDA, was illegal, unjustified, and without jurisdiction. It noted that the land had been converted from agricultural to commercial and a registered lease deed had been executed in favor of the company, making the transaction not a benami transaction. Conclusion: The court quashed the provisional attachment orders dated 12.01.2018 and the confirmation orders dated 30.01.2019, directing that the property be handed over to the company. The writ petition was allowed with all consequential benefits, and all pending applications were disposed of.
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